The Australia-India market has experienced rapid growth over the last three years, prompting Australia to lobby for more direct services. Visitor arrivals from India are up 50% since mid-2013, and total passenger traffic between the two countries is up approximately 30%.

Attracting more nonstop flights from Air India, or the possible launch of nonstop flights to India by Australian carriers, will not be easy despite growing demand. Southeast Asia’s network airlines have a competitive advantage as they serve several gateways in both Australia and India. Southeast Asia’s growing medium/long haul LCCs have also started to compete in the Australia-India market and are well positioned to take a large share of the anticipated growth.

Indian visitor numbers to Australia have increased by 50% in three years

Australia attracted approximately 242,000 Indian resident visitors in the year ending 30-Jun-2016 (FY2016), according to Australian Bureau of Statistics and Tourism Australia data. India visitor numbers grew 9.4% year-over-year, broadly matching the 10% growth in total visitor numbers.

Visitor numbers from India have grown over 50% since FY2013, when Australia reported approximately 160,000 Indian resident visitors. India is now the ninth largest source market for Australia’s tourism sector– slightly ahead of Hong Kong and slightly behind South Korea.

The surge over the last three years coincides with the launch of services to Australia by Air India. Air India re-entered the Australian market in Aug-2013 with daily flights on a triangular routing combining Melbourne and Sydney. It currently operates four weekly 787-8 flights from New Delhi to Sydney and three weekly 787-8 flights from Delhi to Melbourne.

Air India has contributed to the growth but has only a small share of the total market

Air India carried approximately 142,000 passengers to and from Australia in calendar 2015, according to AustraliaBITRE data. This included approximately 77,000 inbound passengers from India to Australia with an average inbound load factor of 85%, and approximately 65,000 outbound passengers from Australia to India with an average outbound load factor of 71%. 1H2016 data shows a similar trend, with Air India averaging an inbound load factor above 80% for most months, but a significantly lower outbound load factor.

The total number of Australia-India bookings has increased by nearly 30% – from approximately 440,000 one-way passengers in FY2013 to nearly 560,000 one-way passengers in FY2016. Since it carried 64,000 of the 560,000 Australia to India passengers in FY2016 Air India has accounted for approximately half of the total growth in the market since FY2013.

A majority of Australia-India passengers continues to fly between the two countries via intermediate hubs. Singapore has historically been the most popular intermediate hub between the two countries, followed by Kuala Lumpur and Bangkok.

Australia-India passengers by airline (% of bookings): year ending 30-Jun-2016

Note: based on one-way passengers from Australia to India
Source: CAPA – Centre for Aviation and OAG Traffic Analyser

SIA has benefitted from the overall growth in the Australia-India market and has not lost market share as a result of Air India's entrance. SIAAustralia-India bookings increased 28% from FY2013 to FY2016, enabling the airline to maintain a 41% share of the market as the total market grew by a similar amount.

Guangzhou and Hong Kong offer slightly more circuitous routes compared with Southeast Asian hubs but are much more convenient than the Gulf hubs. Cathay Pacific, and particularly China Southern, have a smaller presence in India compared with their Southeast Asian rivals – which explains their much smaller share of the Australia-India market.

Scoot will likely account for a large chunk of the anticipated growth, rather than take away market share from its parent, which continues to rely on India connections for its large (and still growing) Australia operation.

Scoot has been serving Australia since its 2012 launch but did not have its own flights to India until May-2016, and initially did not have any connecting product with its sister airlines SIA or Tigerair. Even when a connection product with SIA and Tigerair was launched, the product attracted very few passengers due to marketing and IT issues. In FY2016 Scoot accounted for only 1% of total Australia-India bookings.

Malindo is a full service airline yet sometimes offers fares only slightly higher than LCCs. Malindo’s fares from Perth to Delhi for travel in Oct-2016 now start at approximately USD600 return, including taxes.

From the much bigger Melbourne to Delhi market, AirAsia X fares for travel in Oct-2016 start at approximately USD500 return. Air India fares for its nonstop product start at approximately USD800 return, while SIA and Malaysia Airlines offer fares from approximately USD700.

Perth-Chennai fares on Scoot for travel in Oct-2016 now start at approximately USD400 return, while Melbourne-Chennai fares start at approximately USD500 return. AirAsia fares in these markets start approximately USD100 higher for travel in Oct-2016. SIA and Malaysia Airlines fares for Melbourne-Chennai and Perth-Chennai start at approximately USD700 return.

SIA has five destinations in Australia (soon six with the launch of Canberra) and six destinations in India. The SIA full service regional subsidiary SilkAir provides SIA with another two destinations in Australia and another five destinations in India that are also not served by the parent airline.

SIA also has more frequencies than competitors in all the main markets for Australia-India traffic. SIA currently has four daily flights to Melbourne and Sydney, 17 weekly frequencies to Mumbai, and two daily flights to Delhi.

The restructured flag carrier’s new business plan heavily relies on regional connections within Asia Pacific from Australia, including India, to offset significant reductions on the Kangaroo route from Australia to Europe. Malaysia Airlines has dropped all of its European destinations except London.

Tourism Australia and other government agencies in Australia are now lobbying for more direct flights to Australia. However, intense competition from Southeast Asian airlines – both full service and low cost – will make it hard for any airline to justify new nonstop flights in the Australia-India market.

The Southeast Asian airlines have the capacity in both Australia and India to cater to increased demand for Australia-India traffic – and have ideally located hubs for Australia-India traffic. Most significantly, Southeast Asian airline groups have the networks to cater to all significant Australia-India city pairs.

The biggest Indian gateway for Australia-India traffic is Delhi, the base that Air India uses for its nonstop services to Melbourne and Sydney. However Delhi only accounts for just under 40% of all Australia-India bookings, according to OAG Route Analyser data for the year ending 30-Jun-2016.

Mumbai accounts for approximately 15% while nearly half the market is spread out across several smaller Indian cities. Australia is unlikely to attract nonstop services from any of these other Indian cities. But collectively they account for a large volume of passengers.

A relatively large share of Australia-India traffic is also heading to cities other than Melbourne and Sydney. But again it is unlikely that any of these Australian cities can attract nonstop services from India.

Melbourne and Sydney each account for approximately 35% of total Australia-India bookings. Brisbane and Perth each account for approximately another 10%. Secondary cities account for the remaining 10%.

Australia-India bookings based on Australian city or origin: year ending Jun-2016

Australian airports are certainly keen to attract more, or new, nonstop services from India.

More capacity from Air India is probably the most feasible scenario. Air India has performed fairly well in Australia, particularly since it ended the initial triangle routing and began operating separate nonstop flights to Melbourne and Sydney in May-2015.

There now seems to be sufficient demand to upgrade both the Melbourne and Sydney services to daily. However more capacity for Melbourne and Sydney is not currently a priority for Air India, which is focusing more on launching new long haul destinations.

Services to India from Jetstar or Qantas seem relatively unlikely. Qantas, which served Mumbai via Singapore until 2012, could potentially move the stopover of one of its London flights from Dubai to Delhi or Mumbai (used previously as an intermediate point by Qantas). Qantas is now assessing new options for stopping one of its two daily London flights, but selecting an East Asian airport is more likely.

Jetstar is expected to free up some of its 787-8s over the next couple of years as A320neos replace 787-8s on Australia-Bali routes. Jetstar is assessing several options for these aircraft and India may be in the running. However, there are several other potential routes for Jetstar’s limited 787 fleet – particularly China.

The reality is that it will be difficult for any Australian or Indian airline to compete against Southeast Asian airlines.

The Australia-India market will continue to grow, but Southeast Asian airlines are much better placed to capture this growth.

Want More Analysis Like This?

CAPA Membership provides access to all news and analysis on the site, along with access to many areas of our comprehensive databases and toolsets.